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NZ dollar gains after Fed extends low interest rates; OCR looms

Thursday 26th January 2012

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The New Zealand dollar hit a fresh three month high against the greenback ahead of today’s official cash rate review, where the Reserve Bank is expected to keep rates on hold, and news the US Federal Reserve will keep its rates low until at least late 2014.  

The New Zealand dollar rallied as high as 81.44 US cents just after 7am this morning and was trading at 81.24 cents at 8.15 am, up from 81.14 cents yesterday at 5pm.

Reserve Bank Governor Alan Bollard is expected to leave New Zealand’s historic low 2.5 percent official cash rate unchanged at its review this morning.

Inflation figures released last week highlighted there is very little urgency to increase the rate before the end of 2012, as downside risk from the ongoing European debt crisis to stabilise the crisis remains.

“We might see a 20 to 25 point move in the New Zealand dollar, with some potential volatility once the Asian markets open and they have digested the news of the Federal Reserve announcement,” said Dan Bell, currency strategist at HiFX.

Federal Reserve policymakers extended their previous pledge to keep interest rates low until the middle of 2013 to at least late 2014, as more than two years of economic growth have failed to push unemployment below 8.5 percent.

“That announcement opened the flood gates – it is quite interesting and suggests we will see further upside in the New Zealand dollar over the next few days,” Bell said.

In Europe, talks between Greece and its private creditors continue, after the European Union finance ministers rejected their latest compromises.

There has been some suggestion the European Central Bank should be forced to accept deeper losses on their holdings of Greek debt to help bring the nation’s borrowings to a sustainable level.

In the US, earnings season continues, with 108 companies in the S&P 500 reporting results since January 9, of which 72 posted per-share earnings that beat projections, Bloomberg data showed.

Markets across the Tasman will close tomorrow for Australia Day, while China reopens after its spring holidays. The New Zealand dollar fell to 76.83 Australian cents from 77.02 cents.

It rose to 52 British Pence from 51.90 pence and advanced to 63.25 yen from 63.07 yen. The kiwi was little changed on 62.24 euro cents from 62.22 cents. The trade-weighted index rose to 71.92 from 71.85.


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